Benefits of IT in supply chain management an explorative study of progressive Finnish Companies

Jaana Auramo *) Jouni Kauremaa **) Kari Tanskanen ***)

*) Department of Industrial Engineering & Management, Helsinki University of Technology, PO Box 5500, FIN-02015 TKK, Helsinki, Finland, E-mail: jaana.auramo@hut.fi, Tel: +358-9-4511,Fax: + 358-9-4513556 **) Department of Industrial Engineering & Management, Helsinki University of Technology, PO Box 5500, FIN-02015 TKK, Helsinki, Finland, E-mail: jouni.kauremaa@hut.fi, Tel: +358-94511,Fax: + 358-9-4513556 ***) Department of Industrial Engineering & Management, Helsinki University of Technology, PO Box 5500, FIN-02015 TKK, Helsinki, Finland, E-mail: kari.tanskanen@hut.fi, Tel: +358-9-4511,Fax: + 358-9-4513556

ABSTRACT
It is commonly acknowledged that information technology (IT) is and increasingly will be an essential element of managing logistics operations in networks. However, there is less empirical evidence describing of the actual benefits of IT in supply chain management (SCM). This study, by means of a small survey and case-interviews, examines within selected progressive companies what are the benefits, types of use, and trend in the use of information technology in industrial supply chains. Five propositions on the use and benefits of IT are presented. First, successful companies have developed focused e-business solutions for improving customer service elements that are most important in their business. Second, efficiency has improved which allows company personnel to focus more on business critical activities. Third, the use of e-business solutions improves information quality. Fourth, e-business solutions that are based on planning collaboration improve agility of the supply network. Finally, for receiving strategic benefits, the use of IT has to be coupled with process re-design. In addition, as an empirical observation, companies have progressed in the use of e-business technologies in transaction execution under the last five years. The key enabling factors have been the proliferation of Internet technology and emergence of 3rd party service providers in information transmission. In practise the benefits from the use of IT in supply chain relations are mostly related to operational efficiency: to single supply chain processes, such as order information exchange. However, based on the study results, some companies have been able to implement larger scale ebusiness solutions using technology diversely in network level. A key in benefiting from IT strategically is to re-design business processes. Key Words: Benefits of IT, e-Business, e-Business Technologies, Information Technology (IT), Logistics, Supply Chain Management (SCM)

1.

Introduction

Key trends for the near future in logistics include supply chain management and e-business (Skjoett-Larsen 2000). The use of e-business in supply chains is commonly related, but in this paper is not limited, to the use of Internet. Prominent case-examples demonstrate potential benefits. Cisco reported savings of $500 million by restructuring its internal operations and integrating processes with suppliers and customers with the help of Web-based tools (Berger 2000). Currently, 90 % of Ciscos sales are handled on-line (Copacino & Dik 2001). Intel was able to replace hundreds of order clerks by an automated on-line ordering application (Chopra & Meindl 2001). Celestica, one of the worlds largest electronic manufacturing services company has applied a web-solution to better coordinate its global supply base (Shore 2001). Information technology has helped Celestica to improve its responsiveness to customers, and thus helping, for example, Dell maintain its delivery promise to the end-customers. Although it is commonly acknowledged that information technology is and increasingly more will be a vital ingredient in managing logistics operations in networks, empirical evidence of the actual benefits of IT in SCM are less clear. The issue of efficacy of new technologies in supply chains is of paramount interest, besides to the companies operating in networks, to governments investing funds in development and promotion of new technologies. This is the reason why the National Technology Agency of Finland (Tekes) commissioned a study on which this paper is based on. This paper addresses these issues by means of an empirical study in Finland. In this study we review through a series of different research settings what benefits IT really gives for managing supply chains in practice. By doing this, we also examine how companies use different kinds of IT solutions in their networked logistics operations. Finally, we seek an answer to the question, whether there is a trend in the use of IT for supply chain management. This paper is organized as follows. First, relevant literature on the themes of this study is reviewed, followed by the description of the research design of this study. Second, key empirical findings paraded as propositions are presented. Finally, the results are discussed and conclusions of the study are put forward.

2.
2.1.

Literature review
Information technology and supply chain management

The review of extant literature shows the abundance of papers dealing with IT in SCM (Gunasekaran & Ngai 2003, and Johnson & Whang 2002, provide two, although not comprehensive, literature reviews on the subject). Common terms for business models using IT are e-commerce and e-business the former relating commonly to web-based sales, and the latter to a more holistic use of IT; in many instances, however, e-business refers to the use of Internet (for example in discussions of Chopra & Meindl 2001, Johnson & Whang 2002, Lee & Whang 2001, Cagliano et al. 2003, and Cross 2000). In the recent literature for example Simchi-Levi et al. (2003), Dawson (2002), Chopra & Meindl (2001), and Levary (2000) provide comprehensive discussions on the role of new information technology for SCM. According to Simchi-Levi et al. (2003, p. 267) objectives of IT in SCM are: Providing information availability and visibility Enabling single point of contact of data Allowing decisions based on total supply chain information 2

Enabling collaboration with supply chain partners

Elaborating on the commonly viewed functional roles of IT in SCM we can use the following classification (Figure 2.1).
Functional roles of IT in SCM

Transaction execution

Collaboration and coordination

Decision support

Figure 2.1: Functional roles of IT in SCM The most typical role of IT in SCM is reducing the friction in transactions between supply chain partners through cost-effective information flow (e.g. Cross 2000). On the other hand, IT is more importantly viewed to have a role in supporting the collaboration and coordination of supply chain through information sharing (for example Lee et al. 1997 present IT as one of the key cures for bullwhip effect in supply chains). Third, IT can be used for decision support. In these instances the analytical power of computers are used to provide assistance to managerial decisions (for detailed discussion of decision support systems for supply chain management see Simchi-Levi et al. 2003, pp. 293-318, and Swaminathan & Tayur 2003 on the review of analytical models in the supply chain management literature). 2.2. Impact and benefits of IT in supply chain management

IT in general and IT in SCM is viewed to have great opportunities, ranging from direct operational benefits to the creation of strategic advantage. For example McFarlan (1984), Benjamin et al. (1985), and Porter and Millar (1985) argued already in the 1980s for the strategic possibilities of IT for business. Porter and Millar in particular advocate that IT changes industry structures and rules of competition, creates competitive advantage, and creates new business opportunities. In the logistics/supply chain context, Bowersox and Daugherty (1995) outlined that IT is key in supporting companies creating strategic advantage by enabling centralized strategic planning with day-to-day centralized operations. A common view is that IT has a profound impact on managing supply chains. Using case studies in six Finnish industrial supply chains as data, Kemppainen and Vepslinen (2003) argue that IT is, alongside specialization and outsourcing, a key precondition for networking of organizations. One group of scholars argues that because of information technologies, supply chains become less integrated and more market oriented (Malone et al. 1987, Golicic et al. 2002, Williams et al. 2002). For example, Williams et al. suggest that electronic SCM (in their discussion electronic relates to the use of Internet) combines the structural benefits of SCM with the efficiency benefits of arms length approach, enabling, for example, lower cost through possibilities of selecting from a larger supplier base. The classic work of Malone et al. (1987) proposes that the value offerings through IT are electronic communication (speed of communication), electronic brokerage (by IT providing a lean, automated intermediary for resolving market transactions), and electronic integration (coupling of processes). IT seems to be particularly important in fast clock speed industries (Guimaraes et al. 2002) or when flexibility and agility is needed (Sanders & Premus 2002, Heinrich & Betts 2003). 3

Many conceptual papers have addressed the value of IT in SCM (van Hoek 2001, Lee & Whang 2001, Levary 2000, Cross 2000, and Bowersox & Daugherty 1995). For example Levary (2000) suggests that IT in SCM provides reduction of cycle time, reduction of inventories, minimization of bullwhip effect, and improvement of effectiveness of distribution channels. There are also a number of articles presenting empirical findings on the benefits of IT in SCM. The results of these articles are, unfortunately, diminished because of the typically narrow focus of discussion, for example estimating the dollar value of EDI in automotive manufacturercomponent supplier relationship (Mukhopadhay et al. 1995) or the impact of ERP on order completion performance under a period of one year after the implementation of the system (McAfee 2002). Reporting on a general level the benefits of IT in SCM is fraught with problems, because, as noted insightfully by Walton and Gupta (1999) in their discussion of the benefits of EDI: Some benefits are dyadic (or multilateral), dependent on both (or a number of) supply chain parties, and some individualistic The magnitude of change differs from slight to significant process change to the creation of competitive advantage Benefits depend on where (EDI) is implemented. Thus, the benefits of IT in SCM can be manifold and vary by the implementation context. Moreover, the use of IT is closely related to process changes. As such, SCM can be viewed as a process change that is helped or enabled by IT. This makes it hard, or in many cases even a useless academic exercise, to separate the origin of the benefit, whether it comes from IT, process change, or both. Finally, discussing the impact and benefits of IT, the controversial phenomenon, productivity paradox of IT (e.g. Loveman 1991) cannot be bypassed. Macroeconomic studies in US showed that despite growing IT investment, overall productivity statistics showed poor performance. However, several firm level studies have argued for the non-existence of productivity paradox. For example, in a longitudinal firm-level investigation, Brynjolfsson and Hitt (1996) show that IT has clear impact on firm output. More recently, Devaraj and Kohli (2003) argued that the conceptual problem relating to productivity paradox of IT is that in many studies only IT investment, not the actual usage is considered. They showed how the observed use of IT was positively and statistically significantly related to revenue and quality improvements with a specified time lag, while the investment in IT as such with the same data was not. In addition, David (1990) draws a parallel of IT productivity paradox with the example of introduction of revolutionary electrical dynamo in the turn of 1900, reminds that this innovation did not first affect productivity, and argues that there are common problems with the introduction of new technology, which might affect that productivity gains realize only with considerable time lags. 2.3. Summary of literature review

The literature review shows that IT is expected to have a pivotal role in managing supply chains now and in the future. In fact it seems that the use of IT is crucial, especially in the fast moving industries, for managing modern supply networks. Moreover, the close relationship of these two concepts, SCM and IT, make it sometimes hard to assess which one gave what benefits. For example, implementing a VMI-model with EDI-information transmission can lead to substantial reduction of inventories and at the same time increase material availability. But could the benefits have been achieved without EDI, for example exchanging information via fax? Or, on the other hand, could the information exchange 4

even have been possible in any other way? Finally we observe the lack of in-depth case studies describing the best cases and recording the impacts and benefits of IT. Extensive focused quantitative surveys are also needed, but a phenomenon as complicated as IT in SCM also needs a thorough examination from a more qualitative point of view, enabling a broader scope of discussion.

3.

Research design

The study consisted on four stages. During the first stage a thorough literature review was conducted and nine leading business consultants operating with supply chain management issues were interviewed. The aim of the first stage was to increase our understanding about the current state of IT implementations in SCM. In our discussion we follow Patterson et al. (2003) and use IT in SCM as synonym for all those technologies that can be used for managing and controlling supply chain related data and activities and information exchange between organizations except that we rule decision support systems out of the scope. This is because decision support systems represent a somewhat separate area with different challenges and benefits. The research was limited to the following IT technologies: EDI, ERP, XML Internet, extranet, electronic B2B marketplaces, 3rd party transaction hubs that provide B2B integration services Item identification (bar coding and RFID) and handheld and wireless technologies The second stage was a phone inquiry. A total of 48 interviews were made with manufacturing, trade and logistics services companies that were viewed as progressive in the use of IT in SCM. Expert opinion of industry representatives and academics was used when selecting the companies for this stage. The objective was to identify what IT solutions companies have implemented in SCM and what practical benefits they have recognized. The questions were sent to the informants beforehand and the actual interviews were conducted over the telephone. In larger organisations informants were logistics or SCM managers, development managers or IT managers and in smaller organisations questions were addressed to managing directors. The SCOR process model was used as a basis for the questionnaire to cover all relevant SCM issues. The questionnaire contained questions about use of IT in: Buy-side transactions Sell-side transactions Inbound and outbound material flows and inventory management Planning collaboration A total of 18 cases were identified to have clear benefits from IT implementations in SCM during telephone interviews. These were selected for the stage 3. This stage was a more indepth analysis of practical e-business solutions in various SCM areas. Cases that were still in the planning stage were excluded, since we were searching for realised benefits. Case method was selected as it permitted us to explore the question, what are the benefits of IT in SCM, even though may of the variables related to the phenomenon are still unknown (Meredith, 1998). Semi structured interviews were conducted with teams of two investigators. Questionnaires were sent to the informants beforehand to enable them to acquire necessary knowledge about the topics to be covered. Topics included case specific elements related to the selected IT implementation as well as questions about the benefits and challenges during and after the implementation process. 5

Within case and cross case analysis was conducted during the stage 4. Each case analysis contained a detailed description of the particular IT application in SCM including process description and technology used. The reported benefits were analysed based on both qualitative and quantitative data when available. Cross case analysis was conducted in two dimensions: what were the recorded benefits of IT in SCM and weather the implementation of IT was related to single processes within a company, co-operation between two SCM partners or if there was a clear network impact. Benefits were further developed into propositions that are presented in chapter four. All of the 18 e-business solutions were then trawled and grouped according to which propositions they were related. Results are applied in Table 3.1. Table 3.1: Specific information of cases used in the study
Case and company Datex Ohmeda, supplier web Elcoteq, demand forecasts to suppliers Finnish Post, web service for centralised purchases GNT-Finland, sell-side web Innogas, VMI Kiitolinja, sell-side web Kone, supplier web and collaboration with LSP Kverner Power, RFID tracking Nokia, dynamic VMI Optiroc, integration with logistics service provider Orion Pharma, integration with package manufacturer Rocla, supplier web SE Mkinen, logistics control system Tellabs, direct delivery model Tellabs, integration with logistics service provider UPM Kymmene self billing Vaisala, back office integration, supplier web Wrtsil, sell-side web
*) **)

Industry Medical instruments Electronics Logistics services IT wholesale Logistics services Logistics services Machinery manufacturing Machinery manufacturing Telecommunication Construction supplies Pharmaceuticals Machinery manufacturing Logistics services

Technology solution 3 party transaction hub EDI, RosettaNet XML Extranet, EDI, XML Extranet, systems integration over web EDI Extranet Extranet, EDI RFID, XML EDI, RosettaNet XML System integration, mobile data terminals in vehicles EDI Extranet Extranet, EDI, system integration, mobile data terminals in vehicles EDI EDI rd 3 party transaction hub, system integration Intranet, extranet
rd

*)

Propositions

Scope of solution
**)

1,2,3 1,2,3,4,5 1,2 1,2,4 1,2,4 1,2,3 1,2,3,4,5 1,2,3 1,2,3,4,5 1,2,3,4 1,2,3 1,2, 3 1,2,3,4,5

process network process process / dyadic dyadic process network process network dyadic dyadic process / dyadic dyadic

Telecommunication Telecommunication Forest products Electronics Machinery manufacturing

1,2,3 1,2 1,2 1,2,3,4,5 1,2,3,4

dyadic dyadic process network dyadic

Numbers refer to propositions presented in chapter 4 and indicate the relation to the case.

Indicates weather the case is related to a single SC process, is a dyadic partnership or has a true network dimension.

4.

Results

Based on our study we present five propositions on the use and benefits of e-business technologies in supply chain management. The content of the propositions can be summarized as follows: Proposition 1: A key operational impact of IT is the enhancement of service level. Proposition 2: IT improves operational efficiency. Proposition 3: IT improves information quality. Proposition 4: IT enables agile supply chain operating models. 6

Proposition 5: Use of IT has to be coupled with process re-design to receive strategic benefits A detailed discussion on the propositions follows below. Before that we report several empirical observations on the use of e-business technologies in our sample companies. Data collected in the phone inquiry of this study shows a clear increase in companies using IT in transaction execution under the last five years. Table 4.1 summarizes the number of companies using the most common e-business technologies and the time of use based on the answers of 48 industrial and logistics services provider companies. Table 4.1: The time in use of the most common IT solutions in purchase and sales transactions based on answers of 48 companies (pct of companies using the technology)
< 3 years Purchase orders: EDI/EDIFACT Extranet 3rd party transaction hubs **) Purchase invoices: EDI/EDIFACT System to system with other means Sales orders: EDI/EDIFACT Extranet Sales invoices: EDI/EDIFACT EDI/EDIFACT with EPL ***)
*) **)

3 - 5 years 13 % 33 % 75 % 19 % 0% 33 % 33 % 22 % 25 %

> 5 years 73 % 22 % 0% 50 % 20 % 43 % 20 % 57 % 58 %

Total 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 %

n *) 15 9 4 16 5 21 15 23 12

13 % 44 % 25 % 31 % 80 % 24 % 47 % 22 % 17 %

indicates the total number of companies using the solution 3rd party transaction hub refers to B2B integration service offered by a 3rd party. Service provider is a node to which the interacting companies attach to without having to be concerned about integration issues ***) Sending invoices as EDI messages to a 3rd party service provider who either via mail or electronically transmits the invoices to the receiver

As expected, EDI/EDIFACT has in general been used over 5 years, with, however some companies being newer with the solution. According to this data EDI is alive and well. Novel solutions are extranet for orders and the use of 3rd party transaction hubs of intercompany exchange of transaction data. Some companies have recently created proprietary system-to-system links with suppliers to receive purchase orders. 50% of the 21 companies using extranet for receiving customer orders have implemented the solution less than 5 years ago. Interestingly, electronic B2B marketplaces (Grieger, 2004, Skjott-Larsen et al., 2002) were non-existent in our sample. In conclusion, companies have progressed in the use of e-business technologies in transaction execution, but comprehensive electronic models are still yet to emerge. The key enabling factors for increased use of IT have been the proliferation of Internet and emergence of 3rd party service providers in information transmission. Proposition 1: Successful companies have developed focused e-business solutions for improving customer service elements that are most important in their business The relationship between SCM information and communication systems and customer service has been identified in several previous researches. Earlier studies have mostly fo7

cused on specific ICT solutions, as EDI or integrated information systems. Lim and Palvia (2001) found that EDI contributes positively (statistically significantly) to order cycle time, product availability, distribution flexibility, distribution information, and distribution malfunctions. They studied 114 US companies of which 61 were from automotive industry and 53 from pharmaceutical industry. Ahmad and Schroeder (2001) reached similar results in their study that was based on data from the world class manufacturing project involving 85 world class manufacturers from US, Japan, Europe. Vickery et al. (2003) observed statistical causality of integrated information systems, supply chain integration, customer service and financial performance. Their study involved 57 1st tier automotive industry suppliers. These results can, however be criticized because the identified correlations were weak. Customer service is commonly an essential part of companys strategy, but views of its contents vary. In logistics it means making the products available for the customer. This involves, however, much more than just delivering the products when ordered. Christoper (1998) discusses logistical customer service using the classification into pre-transaction, transaction and post-transaction elements. Good pre-transaction customer service means that customers understands what the company is able to supply, the company is easy to contact, and the company can adapt delivery systems to particular customer needs. The transaction elements of customer service are between order and delivery, for example order cycle time, delivery preciseness and order status information. The post-transaction elements refer to issues after the customer has received the original product, for example availability of spares and correct billing. Our research revealed that there exist a wide variety of e-business solutions that aim at improving customer service. The solutions are commonly tailor-made for the companys situation and they focus on improving customer service elements that are most important in that specific business. This way the e-business solutions have reached good perceived return to investment and big leverage to companys competitiveness. An example of improving both pre-transaction and transaction elements of customer service is Kone Elevators e-procurement system for modernization projects. When customer places an order for Kone, it is immediately visible also for suppliers. Major suppliers receive an EDI-message directly their ERP-system, for smaller suppliers Kone has an extranet solution. A few suppliers still receive the information by fax. With this operation model Kone is able to check its suppliers capability and confirm customer orders within 3 days. Using also a collaboration model with a logistics service provider their delivery time has shortened from 8 weeks to 4 weeks, and delivery accuracy has improved. Customer has also real-time access to information related to his order. In another case, Optiroc, a supplier of construction materials, is able in tight collaboration with a logistics service provider to send accurate pre-warnings to customers about forthcoming shipments. SE Mkinen, a provider of vehicle (primarily new cars) transporting services, uses its real time information system to deliver at right time to right place keeping its promises to customers while maintaining operational efficiency. Finally, Wrtsil Service, a supplier of ship machinery and power plants, saw that the posttransaction elements of customer service are critical in their business. They implemented 3 years ago a Spares Online extranet system for shortening order confirmation time and helping the customer to order the right spare part. The system also requires the customer to key in all the necessary information Wrtsil needs for handling the order. In 1996 the average time from order to order confirmation was 5,3 days, today it takes in average only 1,8 days

and in best cases only a few hours. Approximately 80% of all spare part orders come through Spares Online. Proposition 2: Efficiency has improved which allows company personnel to focus more on business critical activities. The adoption of IT has enhanced the efficiency of SCM as has been reported in various studies (Power and Sohal 2002, Supply Chain Council 2002, Min & Galle 2001, McAfee 2002). Also the findings of our study support the fact that by improving the efficiency in information transfer IT has made it possible to streamline logistics flows, reduce inventory and improve customer service. In our study we looked at some supplier web solutions and how they have allowed procurement staff to spend more time focusing on building strategic supplier relationships. Purchasing function has traditionally been very labour-intensive activity, where large proportion of procurement staffs time is spent on non-value activities such as data entry, correction of errors in paper work and delivery expedition. In our study, Rocla, a manufacturer of electronic warehouses trucks and automated guided vehicles, implemented its supplier web solution in 2002. All of the direct procurement to a specific customer order is conducted through this extranet. This accounts for 30% of total purchases. Suppliers have real-time visibility to Roclas demand (item, quantity, price, and requested delivery date) and they are requested to view Roclas supplier web daily. Rocla has estimated its savings in ordering and checking invoices to be 2.5 man-years after implementing the supplier web. Our second case Datex-Ohmeda has since 2001 moved all communication (demand forecasts, purchase orders and order confirmations) with its suppliers to electronic form. It uses a 3rd party transaction hub that is linked to DatexOhmedas ERP system. 15% of suppliers have integrated their ERP systems with the service provider, some use EDI and the majority of the suppliers use so caller Supplier Websolution. Today 95% of Datex-Ohmedas purchases with 120 suppliers are done electronically. The company reported that those 20 persons that have previously been involved with routine paper work could now concentrate on more productive jobs. Similar phenomenon was reported from the sell-side IT implementations, where the customer service personnel can focus on more value adding tasks. Wrtsil Service has been able to keep the number of customer service personnel same as before and at the same time improve the response time to customer orders. SE Mkinen has been systematically developing its IT system since 1995 and today about 75-80% of all incoming orders come in electronic form into a central database. Personnel that were earlier engaged in front-line customer operations can now allocate more time to route optimisation to increase operative effectiveness and companys competitiveness. Proposition 3: The use of e-business solutions improves information quality Informational benefits of IT are generally broken into information access, information flexibility, and information quality (Mirani and Lederer, 1998). Information access benefits provide supply chain decision makers with faster and/or easier access to internal and external information. Information flexibility benefits allow decision makers to easily manipulate the content and format of retrieved information. Information quality benefits make the available information more useful, accurate, and reliable. It improves the usefulness of information for strategic planning and operational control (ibid.). Information quality has been studied overwhelmingly by researchers interested in computing, management information systems, databases and their management, data security and data warehouses to mention a few (Melkas 2004). Conventionally, information quality has 9

been described as how accurate information is. English (1999) represents information by formula, where all three components, data, definition, and presentation must have integrity to provide information quality. In supply chain context there are business processes that produce information (planning, designing, selling, distributing etc.), other processes that transcribe if from one form to another and processes that can be considered as users of information. When planning e-business solutions and the underlying processes attention should be paid on information quality management (English, 2001). In our study we identified three different mechanisms how the use of e-business solutions can improve information quality. The first identified mechanism is related to the actual design of the e-business solutions. A good design is based on a clear understanding of the underlying process and the relevant information flows. Those cases where enough time and effort was invested in analysing what data is needed, in what context, to what purposes it is used in various parts of the process and what is the right accuracy and objectivity level reported that the overall quality level of information has improved. Wrtisl Services and GNT Finlands, an IT wholesaler, sell-side web-portals force the customer to specify all the necessary information to the web site before the order goes through. These companies commented that they have been able to rely on the quality of the information in decisionmaking. Kiitolinja, a logistics service provider receives complete customer orders through its web-portal. This helps in executing deliveries and pick-ups without any additional verification. Second, successful e-business solutions have accurate BOM structure built in that break down the demand to components and raw materials. Roclas representatives commented, that when implementing the supplier web it was necessary to systematically check all the product structures to make sure that the information at the web related to the components to be sourced was faultless. The effort to guarantee information quality has paid off as the supplier accuracy has since increased from previous 90-95% to 100%. The first two mechanisms are associated with careful planning of the e-business solutions and its impact on accuracy and reliability of information. The third mechanism is related to using information for operational control or to some extent to strategic planning. We can use Nokias demand information management as an example to illustrate this mechanism. Nokias demand information is broken down to component needs and distributed to various suppliers either as an EDI or XML message or through the supplier web-extranet. New technology solutions enable almost real time demand information distribution to component suppliers. As a result all supply chain partners use same information when making demand fulfilment decisions. According to Lee and Whang (2001) this should counter the problem of demand information distortion the bullwhip effect in a supply chain, which is an important element of information quality. Well-planned e-business solutions also guarantee that all the parties use same version of the changed information. Orion Pharmas co-operation with a packaging company is a good example. It is a medical company that has 20 000 different packaging items. The information on packages change constantly. Previously, when photocopy of a changed package was sent through mail, it took 3 days for the packaging company to process it. In addition for the long lead-time, there was frequently confusion about the latest version of a package. Now when Orion Pharma sends packaging information electronically (both EDI and Internet are used) this problem has disappeared.

10

Proposition 4: e-Business solutions that are based on planning collaboration improve agility of the supply network Agility is a key capability for companies in an environment of rapid and unpredictable change. Christopher and Towill (2000) define agility as a business-wide capability that embraces organizational structures, information systems, logistics processes and, in particular, mindsets. They state that agile supply chain is market sensitive, which means capability to respond to real demand in volatile markets. Bruce and Daly (2004) state that information sharing between supply network partners is essential for reaching agility. Our research revealed that information sharing is already quite common, for example 92% of the studied companies shared demand information, 47% order status information and 42% inventory level information with their suppliers. Most companies shared some material flow related information in addition to orders also with logistics service providers and customers. Most of the information sharing was manual: telephone of face-to-face conversation, telefax or e-mail. Some companies had, however, developed e-business solutions in collaboration with their supply network partners. These solutions were more than just information sharing; they involved simultaneous process and technology development of several supply chain partners. The benefits of these kind of e-business solutions were not just amendments of single customer service elements, like in examples of proposition 1. In these cases the agility of a part of the supply network has improved. An example of improved agility is the previously mentioned Optiroc-case. The company implemented an e-business solution together with their logistics service provider that is based on real time information transfer between the two partners. When customer order is keyed into Optirocs ERP system, it is instantaneously visible at logistics service providers planning system. As the logistics service provider completes the order the updated information is also observable from Optirocs ERP system. Most of the vehicles are equipped with mobile terminals and also status information is updated instantaneously. The use of mobile terminals enables optimisation of deliveries and pick-ups up to the last minute and this has as well improved Optirocs competitiveness at the market. However, Optiroc has not limited the collaboration to the transfer of operational information. They have agreed on a process to meet regularly, four times a year, with the logistics service provider to discuss about the development plans and future business scenarios. Another example is a dynamic vendor-managed inventory (VMI) system that Nokia Networks has developed with its suppliers. Nokia updates continuously the upper and lower inventory limits of its VMI-system and provides this information to its suppliers either by their supplier web-portal or by EDI or RosettaNet XML-messages. The suppliers have also visibility to Nokias sales forecast and inventory accounts of their own products. The suppliers have developed their own planning processes to utilize this information. The VMI system together with dynamic control parameter updating, enhanced visibility and suppliers improved planning systems have had a positive impact on agility of the supply network. A third case example is from the same industry as Nokia. Elcoteq, a contract manufacturer of electronics components, operates with a pull strategy and. When Elcoteq receives demand forecasts from its customer, they are immediately passed on to the supplier base. Subsequent to suppliers confirmation of their ability to fulfil the requested demand, Elcoteq confirms its ability to the customer. Fulfilment is based on the forecasts and no actual orders are passed between the supply chain partners. At the moment all the data is transferred as EDI messages, but the company is piloting RosettaNet XML that would en11

able more dynamic exchange of information in the supply chain. As a result, Elcoteq has been able to build a supply chain that can quickly react to demand changes at the market. Proposition 5: For receiving strategic benefits, the use of IT has to be coupled with process re-design As noted in the literature review, IT is suggested to have strategic impact on companies and supply chain management. We propose that to receive strategic benefits with IT, supply chain processes have to be changed and that some companies have been able to do this. In extant literature, business process re-engineering (BPR) authors hold that the link of IT use and simultaneous design of business processes is a vital ingredient to benefit from development efforts notably (e.g. Venkatraman 1994, Hammer 1990, Davenport & Short 1990). Several other studies in supply chain context have come across the same finding. The study conducted by Supply chain council (2002) reported managers views that technology is only facilitator, not an end target itself. According to the interviewed supply chain managers the biggest challenge is changing the process. Jayaram et al. (2000) show statistically that supply chain time based performance drivers are information intensive IT structure, the utilization of process improvement practices, and jointly deploying these two The best case in our data to support this notion is Vaisala Instruments, the manufacturer of high-tech measuring devices. Vaisala Instruments transformed its global operations with three main market areas (Asia, US, and Europe) into a true make-to-order mode coupling process change in sales and capacity planning with the implementation of several IT solutions. As a result, the new supply chain coordinated by Vaisala Instruments is operating based on projected demand, transmits information without delays, is responsive to changes in demand, and less vulnerable to risks, as regional inventories of finished goods were removed. In addition, previously, regional sales forces were tied with the supply of regional inventories. With a truly global make-to-order mode and centralized manufacturing operations in Finland, the regional sales forces can sell the whole product offering of Vaisala Instruments. The key process change was so called sales planning: this includes incorporating the expected sales in key countries with highest sales with sales force opinion and based on this, planning of both own and supplier production capacity. After the capacity is set, the sales force receives sales quota, that is, the level of sales that can be fulfilled with promised lead-time of 5 days all over to globe. The realized demand is monitored continuously and changes to projected demand are communicated electronically on a day-to-day basis with key suppliers. The IT solutions used in Vaisala Instruments operating model are: 3rd party transaction hub with suppliers enabling capacity collaboration on a day-today basis with key suppliers and exchange of transaction data with practically all suppliers ERP system integration with subsidiaries enabling real time visibility to endcustomer demand in manufacturing operations System integration with global courier company enabling efficient handling of transaction data Our findings also show that only relatively few companies have been able to implement larger e-business solutions and use IT strategically, and most companies still view IT primarily as a means for operational efficiency rather than a tool for strategic advantage. Similar results are reported by a number of scholars in different settings and relating to different technologies (Cagliano et al. 2003, Kheng & Al-Hawamdeh 2002, Hill & Scudder 2002, and Edwards et al. 2001). For example, Cagliano et al. clustered 276 European 12

manufacturing firms according to their type of use of Internet in their supply chains. The result was that only 7 % of the companies were categorized as e-integrators, entailing the comprehensive use of Internet towards both directions in their supply chain. In the 1980s Benjamin et al. (1984) suggested that only some companies have seized the possibility to strategic advantage with IT. We might then ask, is the strategic use of IT more a company specific feature if after 20 years of IT presence only progressive companies use IT strategically? That is, leading companies have and will be using technologies strategically, while others, perhaps while being followers, are not able to exploit given technological innovations for the strategic benefit. Power & Sohal (2002) and van Hoek (2001) advocate the importance of using IT strategically in supply chains. Power and Sohal show through ten case studies of Australian companies that implementing electronic solutions, such as EDI and bar coding, from strategic point of view can lead to substantial benefits. Van Hoek, on the other hand manifests that e-supply chain (the combination of using IT with a strategic approach and integral way), while being under-practiced, results in higher benefits compared to operational and fragmented use of IT.

5.

Discussion and conclusions

The results of this study indicate that the operational use of IT has proceeded in the last five years. Especially Internet technology and 3rd party transaction integration services have provided companies with increased possibilities to network with supply chain partners. However, in most cases the solutions used are quite individualistic as they are developed from a single companys point on view. Of course user aspects (customer and supplier) have been taken into consideration when planning for example buy-side and sell-side portals but the driving force has been to increase effectiveness of the company executing the e-business application. These applications are relatively general with clear specifications and the solutions do not technically differ much from each other. Further, implementing IT only as such, for example in invoicing automation, is not likely to lead to business level impacts. Stating this, it is interesting to observe that in the SCM context the main body of companies views IT primarily from operational side of view. A reason for this might be the relative novelty of IT, meaning that larger scale and strategic solutions are still yet to come, after companies have installed a basic IT infrastructure. When observing those e-business solutions that genuinely are dyadic we notice that it is important to allocate enough resources on planning the processes and selecting the technologies together with the network partners. These e-business solutions are more specific to the particular application and there is more variety within implemented solutions. The case examples in this study demonstrate the multiple ways that IT can be employed. There is no single way of using IT, and moreover, the broader the business area where IT impacts, the more solutions have to be customized. As the applications are more tailor-made, it is also more difficult to copy a solution from one company to another. It was further observed that to achieve real competitive advantage it is important to focus on improving those processes that are most critical for customer service. Successful companies have been able to improve service level and effectiveness simultaneously. Benefits of IT in SCM are multitude and vary by the implementation context. Moreover, as the use of IT is closely related to process changes, most of the benefits are overlapping and interlinked. Then, it is hard to specify the origin of benefit very explicitly. Notable, strategic benefits are only achievable when the introduction of IT is coupled with process re13

design. The ideas of BPR are then closely related to current study. Our study corroborates that business process re-engineering skills are vital for benefiting from IT strategically in SCM. The change in processes needs not to be total, but without any process changes, IT easily becomes merely an automating force, providing efficiency benefits in a limited scope limited. In conclusion: to benefit from IT strategically, process changes are inevitable.

Acknowledgements
We are grateful to the National Technology Agency of Finland (Tekes) for the funding of this study as well as to all the participating companies for their active participation.

References
Ahmad, S. & Schroeder, R.G. (2001) The impact of electronic data interchange on delivery performance. Production and Operations Management, 10(1), pp. 16-30 Benjamin, R.I., Rockart, J.F., Scott Morton, M.S. & Wyman, J. (1984) Information Technology: A Strategic Opportunity. Sloan Management Review, 25(3), pp. 3-10 Berger, A. (2000) Five steps to an eSynchronized Supply Chain. Accenture. Available on line at: http://www.accenture.com/xd/xd.asp?it=enweb&xd=ideas%5Coutlook%5Cpov% 5Cpov_fivesteps.xml [20.2.2004] Bowersox, D.J. & Daugherty, P.J. (1995) Logistics paradigms: the impact of information technology. Journal of Business Logistics, 16(1), pp. 65-80 Bruce, M. , Daly, L., Towers, N. (2004) Lean or agile, a solution for supply chain management in the textiles and clothing industry?, International Journal of Operations & Production Management, 24(2), pp.151-170 Brynjolfsson, E. & Hitt, L. (1996) Paradox Lost? Firm-Level Evidence on the Returns to Information Systems Spending. Management Science, 42 (4), pp. 541-558 Cagliano, R., Caniato, F. & Spina, G. (2003) E-business strategy: How companies are shaping their supply chain through the Internet. International Journal of Operations and Production Management, 23(10), pp. 1142-1162 Christopher, M. (1998), Logistics and Supply Chain Management Strategies for Reducing Cost and Improving service, London, Pittman Publishing, Christopher, M. & Towill, D. (2000) Supply chaian migration from lean and functionanl to agile and customized, Supply Chain Management: An International Journal, 5(4), pp.206-213 Chopra, S. & Meindl, P. (2001) Supply Chain Management: Strategy, Planning, and Operation. Prentice Hall, Upper Saddle River, New Jersey, 457 p Copacino, W.C. & Dik, R.W. (2001) Why B2B e-markets are here to stay. Accenture Outlook, No. 2, pp. 22-29 Cross, G.J. (2000) How e-business is transforming supply chain management. The Journal of Business Strategy, 21(2), pp. 36-39 Davenport, T.H. & Short, J.E. (1990) The New Industrial Engineering: Information Technology and Business Process Redesign. Sloan Management Review, 31(4), pp. 11-27 David, P.A. (1990) The Dynamo and the Computer: An historical Perspective on the Modern Productivity Paradox. The American Economic Review, 80(2), pp. 355-361 Dawson, A. (2002) Supply chain technology. Work Study, 51(4), pp. 191-196 Devaraj. S. & Kohli, R. (2003) Performance Impacts of Information Technology: Is Actual Usage the Missing Link. Management Science, 49(3), pp. 273-289 Edwards, P., Peters, M. & Sharman, G. (2001) The effectiveness of information systems in supporting the extended supply chain. Journal of Business Logistics, 22(1), pp. 1-27

14

English, L. P. (1999) Improving data warehouse and business information quality: Methods for reducing costs and increasing profits. Wiley, New York, NY English, L. P. (2001) Information quality management: The next frontier. American Society for Qualitys Annual Quality Congress Proceedings, American Society for Quality, Milwaukee, pp. 529-533 Golicic, S.L., Davis, D.F., McCarthy, T.M. & Mentzer, J.T. (2002) The impact of e-commerce on supply chain relationships, International Journal of Physical Distribution and Logistics Management, 32(10), pp. 851-871 Grieger, M., (2004), An empirical study of business processes across Internet-based electronic marketplaces a supply chain management perspective, Business Process Management Journal, 10(1), pp. 80-100 Guimaraes, T., Cook, D. & Natarajan, N. (2002) Exploring the Importance of Business Clockspeed as a Moderator for Determinants of Supplier Network Performance. Decision Sciences, 33(4), pp. 629-644 Gunasekaran, A. & Ngai, E.W.T. (2003) Information systems in the supply chain integration and management. European Journal of Operational Research, In Press Hammer, M. (1990) Reengineering Work: Don't Automate, Obliterate. Harvard Business Review, 68(4), pp. 104-112 Heinrich, C. & Betts, B. (2003) Adapt or Die: Transforming Your Supply Chain into an Adaptive Business Network. John Wiley & Sons, Hoboken, New Jersey, 234 p Hill, C.A. & Scudder, G.D. (2002) The use of electronic data interchange for supply chain coordination in the food industry. Journal of Operations Management, 20(4), pp. 375-387 Jayaram, J., Vickery, S.K. & Cornelia, D. (2000) The effects of information system infrastructure and process improvements on supply-chain time performance. International Journal of Physical Distribution and Logistics Management, 30(3/4), pp. 314-330 Johnson, M.E. & Whang, S. (2002) E-business and supply chain management: an overview and framework. Production and Operations Management, 11(4), pp. 413-423 Kemppainen, K. & Vepslinen, A.P.J. (2003) Trends in industrial supply chains and networks. International Journal of Physical Distribution and Logistics Management, 33(8), pp. 701-719 Kheng, C.B. & Al-Hawamdeh, S. (2002) The Adoption of Electronic Procurement in Singapore. Electronic Commerce Research, 2(1-2), pp. 61-73 Lancioni, R.A., Smith, M.F. & Schau, H.J. (2003) Strategic Internet application trends in supply chain management. Industrial Marketing Management, 32(3) pp. 211-217 Lee, H. & Whang, C. (1997) Bullwhip Effect in Supply Chains. Sloan Management Review, 38(3), pp. 93-102 Lee, H.L. & Whang, S. (2001) E-Business and Supply Chain Integration. Stanford Global Supply Chain Management Forum, White paper SGSCMF-W2-2001, 20 p. Levary, R.R. (2000) Better Supply Chains Through Information Technology. Industrial Management, 42(3), pp. 24-30 Lim, D. & Palvia, P.C. (2001), EDI in strategic supply chain: Impact on customer service. International Journal of Information Management, 21(3), pp. 193 Loveman, G. (1991) Cash drain, no gain. Computerworld, 25(47) p. 69-70, 72 Malone, T.W., Yates, J. & Benjamin, R.I. (1987) Electronic markets and electronic hierarchies. Communications of the ACM, 30(6), pp. 484-497 McAfee, A. (2002) The impact of enterprise information technology adoption on operational performance: an empirical investigation. Production and Operations Management, 11(1), pp. 33-53 McFarlan, F.W. (1984) Information technology changes the way you compete. Harvard Business Review, 62(3), pp. 98-103 Melkas, H. (2004) Towards holistic management of information within service networks. Safety telephone services for ageing people. PhD dissertation, Helsinki University of Technology, Lahti Center, Dissertations 2004/1, pp. 42-43

15

Meredith (1998), Building operations management theory through case and field research. Journal of Operations Management, 16(Issue no), pp. 441-454 Mirani, R., Lederer, A.L. (1998), An Instrument for assessing the organizational benefits of IS projects, Decisions Sciences, Fall 1998, Vol. 29, No. 4, pp. 803-838 Min, H. & Galle, W.P. (2001) Electronic Commerce-based Purchasing: A Survey on the Perceptual Differences Between Large and Small Organizations. International Journal of Logistics: Rsearch and Applications, 4(1), pp. 79-95 Mukhopadhyay, T., Kekre, S. & Kalathur, S. (1995) Business Value of Information Technology: A Study of Electronic Data Interchange, MIS Quarterly, 19(2), pp. 137-156 Patterson, K.A., Grimm, C.M. & Corsi, T.M. (2003) Adopting new technologies for supply chain management. Transportation Research Part E: Logistics and Transportation Review, 39(2), pp. 95121 Porter, M.E. & Millar, V.E. (1985) How information gives you competitive advantage. Harvard Business Review, 63(4), pp. 149-160 Power M.T. & Sohal A.S. (2002), Supply chain management in Australian manufacturing Two case studies. Computers & Industrial Engineering, 43(1,2), p.97 Sanders, N.R. & Premus, R. (2002) IT applications in supply chain organizations: a link between competitive priorities and organizational benefits. Journal of Business Logistics, 23(1), pp. 65-83 Shore, B. (2001) Information Sharing in Global Supply Chains. Journal of Global Information Technology Management, 4(3), pp. 27-46 Simchi-Levi, D., Kaminsky, P. & Simchi-Levi, E. (2003) Designing and Managing the Supply Chain: Concepts, Strategies, and Case Studies. McGraw-Hill, New York, 354 p Skjoett-Larsen, T. (2000), Europen logistics beyond 2000. International Journal of Physical Distribution and Logistics, 30(5), pp. 377-387 Skjoett-Larsen, T, Kotzab, H:, Grieger, M. (2002), Electronic marketplaces and supply chain relationships, Industrial Marketing Management, 32(3), pp. 199-210 Supply Chain Council (2002) eBusiness and Supply Chain Processes, USA, 218 p Swaminathan, J.M. & Tayur, S.R. (2003) Models for Supply Chains in E-Business. Management Science, 49(10), pp. 1387-1406 van Hoek, R. (2001) E-supply chains - virtually non-existing. Supply Chain Management: An International Journal, 6(1), pp. 21-28 Venkatraman, N. (1994) IT-Enabled Business Transformation: From Automation to Business Scope Redefinition. Sloan Management Review, 35(2), pp. 73-87 Vickery, S.K., Jayaram, J., Droge, C. & Calantone, R. (2003) The effects of an integrative supply chain strategy on customer service and financial performance: an analysis of direct versus indirect relationships. Journal of Operations Management, 21(5), pp. 523-539 Walton, S.V. & Gupta, J.N.D (1999) Electronic data interchange for process change in an integrated supply chain. International Journal of Operations and Production Management, 19(4), pp. 372-388 Williams, L.R., Esper, T.L. & Ozment, J. (2002) The electronic supply chain. International Journal of Physical Distribution and Logistics Management, 32(8), pp. 703-719

16